Is the IRS Fresh Start Tax Program Legit?

The IRS Fresh Start Initiative is a legitimate program designed to help taxpayers struggling with tax debt. It provides a pathway for individuals and businesses to resolve outstanding tax obligations by offering various forms of relief. This initiative is a collection of expanded and modified provisions within the IRS’s existing collection processes, making key tax relief options more accessible. These include changes to Offer in Compromise (OIC) terms, adjustments to installment agreement thresholds, and expanded penalty relief opportunities. The purpose is to offer taxpayers more flexible terms and reduce the burden of accumulated tax liabilities, helping them return to compliance.

Understanding the Fresh Start Initiative

A key component is the Offer in Compromise (OIC), which allows certain taxpayers to settle their tax debt for a lower amount than originally owed. The initiative expanded eligibility by revising calculations of a taxpayer’s future income and allowing for more reasonable living expenses, including student loan payments and state/local past due taxes. This means the IRS considers a broader scope of financial obligations when determining an individual’s ability to pay, potentially leading to a more affordable settlement.

Installment agreements enable taxpayers to make monthly payments on their tax debt over an extended period. The program expanded the debt limit for streamlined installment agreements, allowing individual taxpayers owing up to $50,000 to set up payment plans for up to 72 months. This offers a more straightforward path to managing tax debt. Businesses owing up to $25,000 can also avoid a tax lien if they establish a direct debit installment agreement to pay off their debt within 24 months.

The initiative also provided relief regarding federal tax liens. The threshold for the IRS to file a Notice of Federal Tax Lien was increased from $5,000 to $10,000. The program made it easier for taxpayers to get a tax lien withdrawn after establishing a direct debit installment agreement, typically after three successful monthly payments have been made and the balance is under $25,000.

Penalty relief addresses penalties for failure to file or failure to pay. The IRS continues to offer First-Time Abatement and reasonable cause penalty relief. These options can significantly reduce the total amount owed by waiving penalties if a taxpayer meets specific criteria, such as having a clean compliance history or demonstrating circumstances beyond their control that prevented timely compliance.

Eligibility for Fresh Start Programs

To qualify for an Offer in Compromise (OIC), a taxpayer must demonstrate an inability to pay their full tax debt within the collection statute of limitations. The IRS evaluates eligibility based on the taxpayer’s ability to pay, considering their income, necessary living expenses, and asset equity. Taxpayers must also be current with all required tax filings and current tax obligations, such as estimated tax payments for the current year.

For streamlined installment agreements, individuals can qualify if they owe $50,000 or less in combined tax, penalties, and interest. Businesses have a lower limit of $25,000 for certain expedited agreements. To be eligible, taxpayers must have filed all required tax returns and agree to make monthly payments, typically through direct debit.

Penalty abatement, including First-Time Abatement (FTA) and reasonable cause relief, has specific eligibility requirements. For FTA, taxpayers must have no prior penalties (except estimated tax penalties) for the preceding three tax years, filed all required returns, and paid or arranged to pay any tax due. Reasonable cause abatement is determined on a case-by-case basis, considering factors like serious illness, natural disasters, inability to obtain records, or erroneous advice, provided the taxpayer exercised ordinary business care and prudence.

A fundamental requirement for all Fresh Start relief options is compliance with tax filings. The IRS will not consider applications for debt resolution if a taxpayer has unfiled tax returns. Taxpayers must file all delinquent returns before seeking relief. Gathering financial documentation, such as income statements, bank statements, and expense records, is also a preparatory step.

Applying for Fresh Start Relief

Once eligibility for a Fresh Start program has been determined, the application process requires specific forms. For an Offer in Compromise (OIC), taxpayers must complete Form 656, Offer in Compromise, and typically Form 433-A (OIC), Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B (OIC) for businesses. These forms require detailed financial information, including income, expenses, and assets, to substantiate the proposed offer.

When submitting Form 656, a $205 application fee is generally required, along with an initial payment based on the chosen payment option (e.g., 20% for a lump sum offer or the first month’s payment for a periodic payment plan). Low-income taxpayers may qualify for a waiver of the application fee and the initial payment. The completed forms, along with any supporting documentation, should be mailed to the designated IRS address specified in the form instructions.

For an installment agreement, taxpayers can request a payment plan using Form 9465, Installment Agreement Request, or by applying online through the IRS website. Form 9465 requires basic personal information, the amount owed, and the proposed monthly payment amount. If the total amount owed is between $25,000 and $50,000, agreeing to direct debit payments is typically required for a streamlined installment agreement.

Requests for penalty abatement can often be made by calling the IRS, writing a letter, or by filing Form 843, Claim for Refund and Request for Abatement. For reasonable cause abatement, a detailed explanation of the circumstances preventing compliance, along with any supporting documentation, should be provided. For First-Time Abatement, taxpayers can generally request this over the phone if they meet the criteria.

Identifying Legitimate Tax Resolution Services

The IRS Fresh Start Initiative is a legitimate government program, but taxpayers should be cautious of private tax resolution companies that may use misleading marketing tactics. Some companies aggressively advertise “pennies on the dollar” settlements or guaranteed outcomes, which are often unrealistic. Legitimate tax relief services do not promise specific results without thoroughly reviewing a client’s financial situation.

When seeking assistance, look for tax professionals who are licensed Enrolled Agents, Certified Public Accountants (CPAs), or tax attorneys. These professionals are authorized to represent taxpayers before the IRS and are held to ethical standards. Reputable companies will be transparent about their fees, providing a clear breakdown of costs without demanding large upfront payments before services are rendered. Be wary of companies that charge significant fees without a clear plan of action.

Red flags that indicate a potential scam include unsolicited calls or emails claiming to be from the IRS, threats of immediate arrest or asset seizure, or demands for payment via unconventional methods like gift cards or cryptocurrency. The IRS typically initiates contact through mail and will not demand immediate payment over the phone. Legitimate services will offer free initial consultations to assess your situation and discuss realistic options.

It is prudent to research a company’s reputation through independent sources like the Better Business Bureau (BBB) and read customer reviews. Verify that the company has a clean background and is accredited by reputable organizations. If a company claims to be “partnered with the IRS” or “IRS certified,” this is a significant red flag, as the IRS does not endorse or certify private tax resolution firms.